IBM Still Looks Cheap At US$130 A Share
Last week IBM announced earnings well above expectations. IBM is trading toward the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool to see how the share price shapes up.
IBM Valuation
IBM grew revenues from US$91.4 billion in 2006 to US$98.8 billion in 2007 – 8% year-on-year growth. Our assumptions of revenues for the next three years are US$109.0 billion in 2008 growing to US$121.0 billion in 2010 – a 7% compound annual growth rate. We have projected EBITDA margins to grow from 20.0% in 2008 to 21.0% in 2010. We have used a terminal growth rate of 3%. We used a terminal capital expenditure number of US$5.75 billion. We have utilised a WACC (discount rate) of 9%.
Valuecruncher valuation model of IBM with interactive assumptions
Our analysis incorporates the cash and debt on the IBM balance sheet – Valuecruncher calculates a net debt number.
Our analysis gives a valuation of US$141.42 per share which is 19.3% above the current share price of US$126.52.
Based on our analysis the current share price looks undervalued. Play with our assumptions – what does your analysis say?
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